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chapter 12 lecture notes

chapter 12 lecture notes - CHAPTER TWELVE FISCAL POLICY...

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CHAPTER TWELVE FISCAL POLICY INSTRUCTIONAL OBJECTIVES After completing this chapter, students should be able to: 1. Identify the Employment Act of 1946 and the roles of the CEA and JEC. 2. Distinguish between discretionary and nondiscretionary fiscal policy. 3. Differentiate between expansionary and contractionary fiscal policy. 4. Recognize the conditions for recommending an expansionary or contractionary fiscal policy. 5. Explain expansionary fiscal policy and its effects on the economy. 6. Explain contractionary fiscal policy and its effects on the economy. 7. Predict the effect on the Federal budget of an expansionary or contractionary fiscal policy. 8. Describe the two ways to finance a government budget deficit and how each affects the economy. 9. Describe the two ways to handle a government budget surplus and how each affects the economy. 10. Give two examples of how built-in stabilizers help eliminate recession or inflation. 11. Explain the differential impacts of progressive, proportional, and regressive taxes in terms of stabilization policy. 12. Explain the significance of the “full-employment budget” concept. 13. Compare the U.S. budget deficit problem to that in other countries. 14. List three timing problems encountered with fiscal policy. 15. State four political problems that limit effective fiscal policy. 16. Explain and recognize graphically how crowding out and inflation can reduce the effectiveness of fiscal policy. 17. Explain how the Ricardian equivalence theorem predicts saving will offset an expansionary policy. 18. Give two examples of complications that may arise when fiscal policy interacts with international trade. 19. Give an example of supply-side fiscal policy and three possible positive effects from it. 20. Define and identify terms and concepts at the end of the chapter. LECTURE NOTES I. Introduction A. One major function of the government is to stabilize the economy. B. Stabilization can be achieved in part by manipulating the public budget—government spending and tax collections—to increase output and employment or to reduce inflation. C. This chapter will examine a number of topics. 159
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Fiscal Policy 1. It will look at the legislative mandates given government to pursue stabilization. 2. It explores the tools of government fiscal stabilization policy using AD-AS model. 3. Some automatic fiscal adjustments are examined in relationship to the business cycle. 4. The problems, criticisms, and complications of stabilization policy are addressed. II. Legislative mandates— The Employment Act of 1946 was a Congressional mandate for stabilization policy. There will be afforded useful employment opportunities including, self-employmentfor those willing and able and seeking to work. And, to provide maximum employment,production, and purchasing power.
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